By Chris Perras, CIO.
Equity markets were mixed last week with the S&P 500 falling .2% on the back of a Thursday and Friday selloff caused by President Trump returning to the blame China playbook for the virus and our current economic situation.
The Federal Reserve took a pause and left policy unchanged at its regularly scheduled meeting. As expected, economic data continued at abysmal levels albeit not as bad as 2 weeks ago. Initial jobless claims fell to a still massive 3.8 million. Manufacturing PMI fell further into contraction territory at 41.5 in April.
Meantime, a number of mainly southern states are slowly taking some of the constraints of their businesses and off the economy. Who were the winners and loser in the sock markets in April?
The NASDAQ and economy has been the star of the show, still holding a year-over-year gain (yes, gain), up 6.9%. Some of the largest technology and consumer services companies have actually gained from the shock—think Netflix (you’re watching it), Amazon (you’re buying more online) and the likes of Microsoft and Intel (you’re working online). Additionally, a number of large drug companies’ sales have held up and benefited from the virus. However, overall, there are very few companies that don’t require a stable or growing overall economy.
Another feature of this downturn is that it is crushing small businesses much harder than many big companies. The small cap S&P 600 index is down 20% in the past year, while the S&P 100 large caps are up slightly. The last 4 weeks we have seen more evidence that the relative performance small caps have stabilized versus large caps, which would be a great sign for the overall equity markets.
More defensive rate-sensitive sectors like staples and utilities have outperformed on a relative basis.
Energy stocks have been crushed by the plunge in oil prices with the Russia and Saudi Arabia skirmish putting the exclamation point on a multi-year oversupply of oil. Storage supply is pushing capacity and global demand has effectively been turned off. The U.S. energy sector is down 43% making it the worst performing sector in North America. Readers, the underperformance of energy stocks is not new! It has been going on since June 2008 when China demand peaked with the launch of the 2008 Olympics.
Banks have been the second worst performers over the past three months. Plunging long-term rates have hurt the group, but at least now a great deal of the inevitable wave of credit losses has been at least partly priced in.
This morning, U.S. equity futures are down about .75%, as investors continue to worry about renewed trade tensions between the U.S. and China. Last week, President Trump threatened new tariffs on China, on top of the current 25% duty on $360 billion worth of goods. Readers, this is the last thing our economy and markets need to hear at this time. Playing the blame game before we recover is a license for a bad outcome regardless of its truth or not. Hopefully, this rhetoric is reigned in quickly, before it does more harm to sentiment and the economy. Also weighing on sentiment this morning, Warren Buffet says he has sold all of his U.S. airline stocks, pressuring their prices in pre-market trading. WTI oil prices are down 8% to around $18. OHFG does not hold airline stocks broadly in portfolios.
Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, Articles, and information cited are believed to be reliable at the time of creation, but is not guaranteed. Content should not be regarded as personalized investment advice. Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Past performance is not indicative of future results. Investing involves the risk of loss.